The Central Board of Direct Taxes (CBDT) has directed assessing officers/ transfer pricing officers to ignore safe harbour rates or margins while conducting transfer pricing audits.
“In cases where an assessee has not opted for safe harbour or the option has not been found to be valid and a regular transfer pricing audit is considered necessary, such transfer pricing audit will be carried out without regard to the safe harbour rates or margins,” said a CBDT letter to chief commissioners.
Reacting to the letter, Aseem Chawla, Partner, MPC Legal, a law firm, welcomed the initiative, but noted that it was a little belated.
“This could have been announced at the time of unveiling safe harbour regulations. The transfer pricing assessment should be carried out in an objective manner keeping into consideration the underlying facts and circumstances. It would be unfair to equate the purpose and intent of safe harbour regulations with that of transfer pricing,” he said.
Amit Maheshwari, Partner, Ashok Maheshwary & Associates, said CBDT had emphasised the fact that in case where a taxpayer does not opt for safe harbour rules, the assessing officer will not consider these as a benchmark to calculate an arm’s length price.
Meanwhile, 32 safe harbour applications have been filed with Indian tax authorities for 2012-13 before November 30, it is learnt.
Tax experts see this as a “cold response” and attribute this muted response to lack of awareness among industry.